Impact of Foreign Direct Investment on Welfare in Africa: Empirical Evidence from Guinea

Abstract

The recent economic and financial hardship has resuscitated controversies over the role of Foreign Capital in economic growth and welfare enhancement in emerging nations, particularly in Guinea. The literature that scrutinizes the causal interaction among FDI and poverty alleviation is relatively abundant, the fundamental statement shared by these empirical studies is that GDP growth is assumed to be relevant proxy of people well-being. However, Guinea and its FDI attraction policies have not been well approached by some of these paper. This empirical study examines the interaction between FDI inflows and poverty alleviation in Guinea from 1990 to 2017. The Human Development Index (HDI) and the per capita FDI net inflows are respectively employed as key welfare and FDI indicators.The findings from the Error Correction Model (ECM) confirm that, in the long term the variables converge in the same direction. The outcomes also exhibit that per capita FDI in the long run, negatively impacts welfare but not significantly, while Inflation’s coefficient remains positive and significant. With trade openness, we still found the same positive interaction but not significant. The results from the Auto Regressive Distributed Lag Model (ARDL) exhibit that per capita FDI flows [current value and L2.] have positive but not significant impact on HDI whereas FDI [L1] has a negative interaction with welfare at 10% significance level. The trade openness variable [current value] is negatively but not significantly associated with HDI, while inflation [L1 and L2] influence on human advancement is positive and significant.Overall, Foreign direct investment in Guinea is still resource seeking investment which impact on the domestic economy is very limited. Hence, government should introduce new policies and incentives in order to attract more market seeking or other types of FDI that may promote inclusive growth and alleviate poverty.